UCare pays Minnesota additional $1.57 million after profit-cap error

Minneapolis-based UCare has paid another $1.57 million to the state to comply with a one-time cap on health plan profits during 2011, according to the state Department of Human Services.

The payment was disclosed in an audit of UCare released Thursday, Dec. 6, along with audits of three other HMOs that manage care for patients in the state's public health insurance programs. Overall, the audits found "generally sound" financial management at the health plans, a state official said, but also identified "several issues" including the need for the UCare payment.

Gov. Mark Dayton called for the audits early in 2011 as questions swirled at the Capitol about whether HMOs have earned excessive profits in the state's Medicaid and MinnesotaCare health insurance programs.

In the midst of the scrutiny, health plans agreed with Dayton to place a 1 percent cap on profits from state programs during 2011. The cap, which generated $73 million in payments from the health plans earlier this year, now has generated more than $74.5 million for the state with the latest UCare payment.

"We self-reported this as soon as we found it," said Ghita Worcester, the senior vice president of public affairs and marketing at UCare.

Earlier this year, UCare paid $8 million due to the cap, but that sum turned out to be too low due to a spreadsheet formula error, Worcester said. The flawed formula wrongly allocated certain administrative costs to UCare's public programs business, she said, and the mistake resulted in an understatement of UCare's earnings from the Medicaid program.

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The audit document released Thursday cited the spreadsheet problem as one of three findings with recommended fixes at UCare. Auditors also issued recommendations for findings in the audits of HealthPartners and Blue Plus, which is a subsidiary of Eagan-based Blue Cross and Blue Shield of Minnesota. There were no issued recommendations for Medica, though auditors noted "observations" at all four HMOs.

"The financial management of publicly funded health care programs by managed care organizations in 2011 was generally sound," Lucinda Jesson, the state Human Services commissioner, said in a statement. "Several issues were identified that deserve further action and demonstrate the wisdom of this increased oversight of public programs."

Dayton issued an executive order calling for the audits in March 2011. They found that HMOs were making contributions to affiliated charitable organizations and foundations. The companies also did not limit executives' salary or compensation amounts before allocating the expenses to public programs.

Health plans allocated marketing and advertising expenses to public programs, the audits found, even though Medicaid contracts restrict HMOs from marketing to beneficiaries who are not current enrollees.

It's unclear whether any of the other issues identified in the audits will result in further payments from HMOs to the state, said Jeremy Drucker, a spokesman for the Department of Human Services.

In a statement, officials with Minnetonka-based Medica said the results showed the company's financial management is "appropriate and in accordance with all state regulations and recognized accounting principles." Bloomington-based HealthPartners noted that auditors did not propose any changes to its financial statements.

Blue Cross officials said in a statement that its financial reporting practices and methodologies are appropriate and reasonable.